Well quite convinced with Lubumbashi, that this so-called ‘ceiling’ is really not a ceiling as can have been lifted by both the houses of Congress with maximum votes with the president’s support. If we simply go through the records debt ceiling have not prevented expenses and taxation from rising drastically over time. And certainly to overcome debt one would surely be needing kwikcash.co.uk and wonga, good sound financial companies for providing instant assistance in getting rid of such situation.

I think this shutdown is going to be a long one. To me, it's looking like the markets are fairly sanguine about the debt ceiling issue. They know that the US will not default, even if there is no resolution by October 17, or even November 17. What will happen is an even deeper version of the shutdown. Essentially what the Republicans intend to do is to impose a "winter of discontent" and a new recession on the US, by forcing a balanced budget.

The "Winter of Discontent" in the UK in 1979 was disastrous for the ruling Labour Party. The Republican gamble is therefore twofold: Firstly they are gambling that the Treasury will not default on debt, but cut other things that will hurt public services, such as Food stamps, welfare etc. Secondly, they are gambling that the probable recession, the collapse in public services, rubbish piling in the street, will be blamed on the Democrats.

Seen from outside the US, this is an appalling piece of blackmail and political brinkmanship. However, this does not mean that it will not work.

Essentially, if this works, the Republicans get all their Christmasses together, they get to "starve the beast" and blame the Democrats.

As has been pointed out in this column already, the Republicans have already gerrymandered most of their congress seats into safety. The NYT had an article describing how the Republicans have planned this for months.

"On general principles of law and reason, debts contracted in the name of “the United States,” or of “the people of the United States,” are of no validity. It is utterly absurd to pretend that debts to the amount of twenty-five hundred millions of dollars are binding upon thirty-five or forty millions of people, when there is not a particle of legitimate evidence—such as would be required to prove a private debt—that can be produced against any one of them, that either he, or his properly authorized attorney, ever contracted to pay one cent.

Certainly, neither the whole people of the United States, nor any number of them, ever separately or individually contracted to pay a cent of these debts." - Lysander Spooner

It's called debt forgiveness, because the debt has no meaning. It has a historical basis in economic thought. The speculators only serve the system slavishly, capitalism, so we need to annul the public debt.

This is absurd, as if these are rules that we must follow because they are self-imposed, we do not have to pay our debt, we will not ever pay our debt, to imagine and accept the illusion that we will is heinous to the poor, not to the leaders of this country who will not suffer one bit. But the rulers have such control of the power structure that they are drawing a line in the sand between them and the people, and they have very clever tactics for doing so. They are convinced that we need them more than they need us. It's time for workers rights in America and it's time people took charge of business.

Zimbabwe aren't exactly the leaders of the free world, or the world's financiers for that matter. Comparing a debt ridden country directly from the result of American imperialist policy in the same light as America, as the world's empire and basis of most totalitarian power structures of this world, serves no purpose at all, and is an unrealistic comparison.
Regards

Yes, it could result in Weimar Republic levels of inflation so you need a wheelbarrow of greenbacks to buy a loaf of bread. If you want something with actual value it has to be something the Fed cannot print more of, such as land, gold or Bitcoin. So we might be free in the end, but getting there is going to mean a world of pain.

The bulk of single-year appropriations made for a given fiscal year are disbursed the following year (and have four years after that to continue disbursments). Include that to the thousands of multi-year appropriations and revolving funds in the government, the cash flow projects are bleak.

Sincerely,

-The government account whose working capital fund runs out of cash in 7 days.

We shouldn't re-open the government until we've done something about the debt-limit, and until we re-open the government - we don't need to do anything about the limit since we don't need borrow more money until then.

While your solution has the advantage of simplicity, it entails some actions that may be found inadvisable.

Among those actions would be the cessation of salary payments to the armed forces, including those engaged in combat, the closing of veterans' hospitals, and the cessation of payment for members of the House of Representatives. While one or more of these expedients might be considered appropriate, I doubt the US would actually benefit from putting all of them and other similar stoppages in place.

While we're in 'shut-down mode' we're running at a surplus - we don't need to borrow; tax revenue still flows into Treasury as normal - it's only non-essential spending (mostly salaries to the furloughed) that is throttled.
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If salaries to persons still working, or past salaries to anybody, are stalled because of the budget stalemate, then that has to be fixed or finessed immediately - and can be. Is it?

Too true about certain things needing to continue to be done, Mel. But the Feds still receive tax revenue even during the shut-down - the money is there to pay for everything like that at the moment, and for the indefinite future - government has scaled-back its spending, but not its income.

But it can't necessarily scale back mandatory spending, it's obligated to spend it.

Essentially, as long as the elderly voting block has a grip on the metaphorical balls of all three parties (GoP, Dem, and Tea), we'll continue to be in debt as historically this block has always voted for increasing government handouts (to themselves)-- even as the amount of handouts they need skyrockets because of their failing health.

Government can't continue to do everything it did do unless it borrows. But it can do over 80% of all the spending it did do without borrowing. Just gotta cut the least painful 20% of Federal spending - probably well less than that. The shut-down does that - inelegantly, but it does do it.

Because cutting back medicare and social security is impossible given the current political climate regardless of how beneficial it would be. Cutting military spending would be politically impossible for similar reasons, however much it is needed.

Cutting back grants for unemployment benefits, food stamps, and the like would be excruciatingly painful for the people who need them as well as the Democratic party, but relatively painless to the Republican party and their big money donors (even though it'd probably hurt their own voters quite a bit).

Cutting back corporate benefits and tax loopholes would be relatively painless to the population in general and the Democratic party (though it'd hurt their big money donors, they probably accept it as a cost of doing business), but would be excruciatingly painful to the Republican party and their big money donors.

That's why the shut-down is sort of a good thing - it takes a meat-ax approach to cutting spending. So we don't have National Parks open any more and tons of government people out of work and without pay - but at least it brings spending to a level below income from taxes. It's not pleasant, but it is fiscally sustainable - like taking a mistress's credit-cards away from her.

You write that the funding cessation "brings spending to a level below income from taxes."

I wonder if you could give us your source for this information. Several sources I consider fairly reliable (BBC, NY Times, etc.) directly contradict you. They argue that the cost of shutting down and then restarting various government offices exceeds that of merely keeping them in operation.

Thus rather than cutting government expenditures, this 'shutdown' will cost the taxpayer more than business as usual, if figures concerning prior 'shutdowns' have been correctly reported by the US government.

What they did in Jamaica (which is now a Harvard Business School case study on how to default) was default on the debts owed to local citizens but paid the foreign debts held. Entitlements need to be cut anyway but credit remain strong so that's one way....

I would strongly argue that this is a dysfunctional way. There are better options than defaulting to solve our long term problems. An incremental approach is still possible if we can start getting there soon - just like with climate change I feel like it's not quite too late to incrementally solve the problem which spreads the discomfort over generations instead of a relatively small number of people in a particular time. It's unfortunate that those who are benefiting most, are likely those who will feel the discomfort the least because they are the ones who vote in the highest percentages

Perhaps it would be wise if some readers who have commented read the article again. Then they should review the literature on the nature of bonds and on other countries recently suffering sovereign debt problems, for the problem here is a sovereign debt problem, not an internal funding problem such as the current 'shutdown'.

In brief, if the X borrows money from Y and subsequently cannot refinance that loan by borrowing further, Y is stuck with a bad debt. If Z thinks there is a chance X may be able to pay someday, Z may buy the loan from Y at a discount, say 25¢ on the dollar. If X stiffs enough people, the value of all of his loans get discounted.

Now fish your wallet out and look at a greenback in it. You'll see it's a promise to pay by the US government. If you hold US money in any way, shape, fashion, or form, you're holding money that may not be worth it's face value because the government that promises to pay you may not be able to borrow from anybody to do so.

I personally hold no US money except for a few pennies I've gotten in change. I will spend those post haste.

China, on the other hand, has billions of dollars in US bonds. If the US defaults on some of them and China decides to dump them at a discount, your greenback is going to be hit. How? How hard? I have no idea, but I hold great doubts that the US$ will suddenly become more valuable.

The US currently runs at a deficit (i.e. spends more money than it receives) estimated at from 600 billion to 1 trillion dollars a year, depending on who is doing the estimating.

You are absolutely correct that when the US defaults China will take a hit.

However, most of us do not continue lending money to deadbeats. While I truly admire your generosity, I doubt enough people in the world are like-minded enough to fund the US fiscal money-pit in perpetuity. I fear that in this case the milk of human kindness will rapidly turn to cheese.

I hope I err. On the other hand, I shall not be making any gifts to this cause.

Any nation that is dependent on being a net-exporter to the US, as China is, has no plausible option but to continue to "fund the US fiscal money-pit" by placing its accumulated current account balance with the US in US$-denominated instruments.

Exporting unemployment to the US, as China and others have done for two generations now, comes at a cost to everyone.

Two "lovers" who happen to married to other people, each lover betraying in its own way its oath of fidelity. If it weren't for the innocent victims of the affair (and its ending), suicide wouldn't be an unfair outcome for the guilty pair.

@Bill - I'm not a lawyer yet, so I'll give an economist answer. If we don't prioritize interest payments it will be likely that going into the future those very other parties you are alluding to will be harmed even more. The reality is we need to keep these avenues of funding operations open, if we close them we'll end up like so many other countries that prioritized wrong and ended up having every door closed on them. Ultimately if we hope to continue functioning we need our debt instruments to work correctly. Furthermore, don't forget that a lot of US debt is owned by US citizens so some of these interest payments are going to them

"To avoid defaulting on an interest payment it could “prioritise” such payments out of incoming cash (a tactic many analysts expect). This would mean reneging on even more of its other obligations, whether Social Security, medical payments, military deployments or food stamps."

I dont understand how this is going to play out well for anyone, especially citizens who rely on government assistance.

This is merely making the best out of a bad situation (caused in its entirety by a small part of the Republican party being completely insane and unwilling to actually govern the country with anything resembling competence or foresight).

"To avoid defaulting on an interest payment it could “prioritise” such payments out of incoming cash (a tactic many analysts expect). This would mean reneging on even more of its other obligations, whether Social Security, medical payments, military deployments or food stamps."

I dont understand how this is going to play out well for anyone, especially citizens who rely on government assistance.

Prioritizing interest payments should be illegal, as it would favor some creditors over others. Does any non lawyer and non polition have an answer?
An old fashioned solution to reassuring creditors, that the US will not welch on its debt obligations, would be to send hostages to the capital of creditor countries. I fantasize about a plane load of Republican lawmakers finding themselves in Peking or another major creditor capital on the day of a default. How soon would it be necessary to pay for their return tickets? Fifteenth century precedents suggest 20 to 30 years (French losers at Agincount taken hostage took that long to satisfy their creditors)It won't happen, too much slapstick.

The Republicans and the Democrats did agree on a budget. The House Republicans agreed on a budget and the Senate democrats agreed on a budget.

Since April, the Democrats have been trying to get the House into conference to agree on a final budget. But thus far they've refused. The House wants to negotiate only now, because they can present reopening the government as a concession, as opposed to being their job.

Holding the country hostage over healthcare is silly. Will Obamacare cause 800,000 people to lose their jobs, maybe. You know what DEFINITELY causes 800,000 people to lose their jobs? Shutting down the government.

You know what DEFINITELY causes 800,000 people to lose their jobs? Shutting down the government.

Actually it's MORE THAN 800,000 people.
You have to add in contractors - who provide services to the gov't - that are also laid off.
(The people that clean the buildings, grounds, run cafeterias, etc.)

When this thing ends the 800k will probably get backpay for the period, but not the contractors.

Not picking on you, just letting everyone know the part of the situation that the media ignores.
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As for your comment on gerrymandering.

Also, wouldn't the congressional districts in New York change every 10 years with each census?

The shapes and number might change (Ohio lost 1-2 seats) but if a party that holds the legislature and governor, then they can redistrict to their advantage.

Ohio has a district that runs from the west side of Cleveland along a 2 mile wide corridor of Lake Erie to the east side of Toledo.

It also has a mandated black district from the east side of Cleveland down to the Akron/Canton area.

First of all, with the government in 'shut-down mode', the Feds are spending/accruing much less cash/obligations than in normal operating conditions. Based on brother Ip's numbers, and some other basic info, it is highly likely - almost a certainty - that the US government is presently operating in surplus, not deficit. In principle, there is no need for further borrowing until the shut-down is over. Once that happens ...

Room for more borrowing can be created by the traditional route of raising the ceiling, or by an un-traditional one - reducing the stock of outstanding debt so as to create enough space for new debt-issuance without breaching the legal limit. Simple matter, really - just ask a few (or even one) big creditor to forgive the Treasury-debt it holds, thus reducing the outstanding balance.

Nobody holds more Treasuries than the Fed, and forgiveness of that debt is truly without financial or economic significance. Nothing is required to make it happen except a few signatures on a few pieces of otherwise meaningless paper. So, like what's the big problem?

Imagine the game that would ensue once government officials shop around with big creditor governments. The potential sovereignty dilemmas are interesting. The alternative of the FED forgiving Treasury Notes, hmmmm.... Could that be a Chartalist/MMT proposition? What would Alfred Mitchell-Innes say?

For anyone but the Fed to forgive would have real balance-sheet implications for the creditor - IMO it wouldn't be right to even ask. It's different with the Fed -

It didn't part with anything genuine to acquire its Treasuries; it bought them with money it QE'd into existence from nowhere. That cash is already out and circulating, and thus its inflationary impact is already in price-levels. It's just accounting now - one branch of the Feds erasing an asset from its ledger and another erasing a liability of the same amount.

It's not MMT, which I only know enough about to know it's nuts (and that other thing is news to me). It does unmask the fiction that government spending isn't already being monetized - that it may be different in proportion than Zimbabwe, but isn't different in principle. Facing that reality (or any other) isn't a bad thing, IMO.

Good points, but you are thinking rationally about balance-sheet implications. Not right to ask, but since its all politicized, why not creditor nations some will say. It has happened before in ailing imperial systems. But I agree with you about FED as the logical choice.

Chartalism is the 19thC concept of money as simply a government legal instrument rather than a commodity. MMT is simply the modern variant of Inne's idea that money is not just a medium of exchange but a form of deferred payment. Government created money is just debt that can be reclaimed via taxation. Its an interesting economic mental exercise if one seeks an alternative to neo-classical or keynsian models. Some find support in Adam Smith, Say, or even Marx. Worth a read for perspective. Check out Inne's The Credit Theory of Money.

The Fed itself doesn't make a compensating reduction in liabilities - the Treasury branch of government does. The Fed takes a balance sheet hit while the other branch takes the offsetting credit. For the government as a whole, it's a wash.

The 'liability' the Fed has is only the promise Bernanke reiterated in public so many times when QE-episodes were initiated - that it would/could promptly recall the funds QEd into existence, and would do so once the immediate crisis was past, by re-selling the assets acquired with those funds and removing the QE-created cash from circulation, thus negating any inflationary impact.

That promise was ... insincere at the time it was made; as in - fraudulent, the making of a promise with no intention of performing it. The accounting exercise proposed represents nothing more than the admission that Bernanke's promise was fraudulently made.

Unfortunately, your first sentance "...Republicans and Democrats failed to agree on a budget." stopped me in my tracks and discredits the remainder of your article. Are you in the business of reporting GOP talking points or facts? You and most other media are communicating the false narrative that both sides are equally to blame when ALL blame is in the lap of the Repubs. The Dems put a budget number on the table for the CR that didn't meet the Repubs halfway, it met them all the way!! Reducing their starting point by somethng like $250 BILLION! Had Boehner had the guts to put it up for a vote, it likely would have passed. Here is what actually happened, ie the FACTS: The Repubs, you know, the ones always worshiping the authority of the Constitution, have shutdown the federal government because they want to stop a constitutionally implemented law that they don't happen to like PERIOD! If they were to succeed with this endeavor I suspect a constitutional scholar may deem the act itself unconstitutional! There are constitutional ways to negate a law which are winning elections, creating a bill intended to override the existing unwanted law, negotiating, voting on and approving that bill in both houses of congress and then having the President sign that bill into law. For example, the way the ACA was implimented into law!! What the GOP has done and how they continue to relentlessly lie about it is appalling, but what is even more appalling is that the media is not reporting it that way.

Not it won't work for them either in longer term. Say they attain power, but now the precedent is set to deny effective governance. Either GOP negates democratic governance by disallowing legislative protocols or Dems also deny them ability to govern in reprisal. Straight route to civil war IMO.

As long the furloughed workers are paid eventually by the regime through raising the debt ceiling, there will hopefully be no significant swelling of the ranks of those Occupiers who can really cause social chaos & societal turmoil leading to all sorts of Color revolution like those Arabs in Spring.

Why is that necessarily a bad thing? If the system is hijacked by the squeakiest of wheels, then (assuming you think your views are even partially correct) replicating the success makes the most sense. If our government becomes so dysfunctional we can't raise the debt ceiling, then some turmoil seems the balm to readjust--even slightly--the social structure towards a slightly more harmonious center.

I hope there is an OWS 2. This time ending with bankers and businessmen going to jail for their incredible (documented) corruption and serious pressure on the politicians from both parties who are overwhelmingly at the beck and call of a tiny elite.

You are talking about "creative destruction", which some say the Middle East is currently experiencing, and which (the theory goes) is necessary to clean out the old and bring in the new. A hard reset.
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While the prospect of a hard reset is alluring because of it's simplicity - you collapse everything and build anew from scratch, as the Communists did after removing the Qing - the collateral damage can be appalling. Witness Syria, Egypt and Iraq.
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Imho a total collapse of the US would result in several states seceding from the union, California, Texas and the New England group are obvious candidates.
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But in the meantime you have local insurgencies, refugees, mass migrations and a backlash by a rump of federal forces. Not pretty. Probably easier for our elected representatives to come to an amicable arrangement.

I agree it generally is best to compromise. I just would rather not hold the check for another's meal, as would be the case if Tea Party members scared Boehner enough to withhold reasonable legislation (as is the current case).

Actually, no. The Roman Senate was seldom deadlocked. The Senate became irrelevant under a growing military dictatorship for foreign policy. Domestic economy was another (but linked) matter. A lot of the Senators and Consular officials were actually barbarians or descended from them. The remainder were old blue-blood families whose interests were aligned with keeping their estates intact from those same barbarians.
But I agree with you that the analogs for the modern US government are fascinating. A better analogy would be the late corrupt Ming court that colluded with the Ching (Manchus) beyond the Great Wall in manuevering for political advantage. We saw how that turned out.

I was stating that the old Roman analogy was not an apt one. There are few real "blue-bloods", meaning old aristocratic (usually wealthy) families, in the US today. And "barbarian" was a Greco-Roman category for anyone not Greco-Roman culturally, but one and/or one's family could become Greco-Roman in adopting the culture. "Barbarian" in that context was the foreign invader who did not unquestioningly accept Greco-Roman identity upon arrival in the empire.

But your proposition about the decline of US hegemony is a good one to my mind. The house divided against itself politically is a reflection of a split within a nation between those who maneuvered to gain from so-called globalization of capital and those who did not. The class and ethnic elements are there, but are not the defining elements.

Only a nation whose political process transcends this divide will stay coherent. Think China after the mid-18thC Qianlong period when the country gradually fractured economically and politically, and thereby became prostrate until the mid-20thC. The political leadership was unable to steer resources to collective ends of general well-being. Daron Acemoglu makes the same point in a recent book. That describes precisely early 21st century United States.

Thanks for that, very interesting points, although the Kennedy and Bush families could be described as the American equivalent of Roman patricians.

Imho Pax Americana is breaking down because a cabal on the extreme right (the Tea Party) have co-opted one half of the bicameral legislature. That matters in the American system because bicameral consensus is required to get anything done, unlike in - for example - the UK where a majority is sufficient.

It is intersting that on his recent tour of AIPAC countries (which Obama had to skip because of the shutdown) Xi made his set-piece speech in Indonesia, a country that offers more to China in terms of resources than any other SEAsian country.

"And in rare public criticism of the United States by a senior Singaporean official, Bilahari Kausikan, the recently retired permanent secretary of the Foreign Ministry, said Thursday in a speech in Hanoi, Vietnam, that in the face of China’s challenge, Washington — and its ally Japan — was “not exerting sufficient countervailing economic influence.”

China’s mounting investments in Southeast Asia, including the establishment of a $50 billion Chinese infrastructure bank to rival development banks influenced by the United States, are no longer “just a matter of business” but “a core Chinese interest,” Mr. Kausikan warned.

We are in 100% agreement. BTW: In a later Roman context, Kennedy family would be the equivalent of the Romanized-barbarian family- nouveau patricians. The Bush-Walker family come much closer to an old Senatorial status, albeit GWB was a throw-back.
The American system breakdown analysis is accurate. However, UK system really is more like a dictatorship by a Prime Minister raised by MPs instead of direct vote. A PM can do far more without MP consensus. What is interesting is how much UK-American similarity otherwise: Scots independence is result of similar backlash to London finance-centric UK from a mainstreet economy left desolate by underinvestment. Very similar to US, if you consider areas of Tea Party support, albeit that discontent was hijacked/manipulated by outside interests.
Another interesting point is how much underlying similarity there is between American parties' real constituencies: educated, affluent elites whose economic behavior subscribes to a utopian/dystopian neoliberal view of the world where local-national investment is irrelevant. Interests are not defined or circumscribed by local-national needs but reduced to a false "citizen of the world" view. My own belief is that the Tea Party harnessed the deep antipathy of the remainder similar to the UK Independence Party.
The neglect/obstruction of interests abroad by this group is grounded in a growing isolationism that recognizes they do not share in the derived economic growth and a basic anti-government perspective. Why pay/support a govt that maintains a system that only deprives me?
China, in contrast, has a distinct sense of their own collective interests, both local and foreign, and however ham-fisted, is also determined. They play ball with the American elites because it is profitable, but try to shield their domestic interests at the same time while using their foreign investment/aid to support them. The determined intelligence effort to obtain intellectual property is a side of that effort also.
Its not another "evil empire", but simply looking out for their own interests. The CCP elite stays in power as long as they are seen to deliver to the Chinese mainstreet by and large (excepting historically corrupt provincial administration).
In the face of this, the US only sees their national interest militarily to provide an umbrella for the "free trade" system that does not realistically enhance the well-being of the American mainstreet. So the Tea Party movement is in effect undermining this through exploiting isolationism and destroying the tax-system. One cannot maintain an expensive blue-water navy without a tax base. And the American mainstreet will not support such endeavors from which they see no real benefits. The oldline GOP and Democrat Party leaderships both see this, but now lack the electoral mandate to govern. The Tea Party is already in effect a new political party. This is what the saavy allies abroad see and are warning about, while competing interests see the same as an opportunity to exploit.
If one must use a Roman analogy, its something like the later Roman Empire telling the outer provinces that they are on their own to deal with threats from growing and sophisticated Germanic alliance groups. Only the Chinese are not barbarians and have a distinct sense of their own longterm interests. Mark Twain's quip (no doubt derived from reading Marx), that history may not repeat itself, but instead rhymes is very apt.

So US allies in SEAsia (Japan, Philippines, Taiwan, Vietnam, Singapore) are like the Romanized Anglo-Saxons of 5th century Brittania. The legions have been recalled to defend Rome against the barbarians and left the defenders of Hadrian's wall to deal with the Picts alone. (The Picts, in this example, being the Chinese). As you say, Plus ça change, plus c'est la même chose.

More accurate to call them client kingdoms, which is what parts of the empire were until the later Roman period. Many if not most were not ethnically Romanized, but part of the Roman socio-economic system. This really included the inner belt of Romanized Germanic kingdoms and client kingdoms of the Levant and No. Africa. The core empire was a fusion of Celtic-Roman in the West and Greek-Roman in the East. These were eventually displaced or subdued by groups of fused Germanic-steppe peoples seeking their wealth as conflict and political dysfunction sapped the military and diplomatic power of the Imperial state.

It's not the same context, but the analogy is an apt one. Only the Chinese are really much more sophisticated and civilized than the Picts ever were. But it is interesting that China was originally a fusion of the coastal Han civilization with the steppe-plateau peoples of Western China. One can almost see the current expansion as a historical extension of an ancient theme. Doubtless the US Asian allies do not see it that way.

China today is an empire cobbled together by one ethno-linguistic group - the Han - who were originally confined to a small area of Eastern China. Tibet and Xinjiang were assimilated into the empire in the 50's, and now the Han are starting on the nine-dashed line area (the entire South China Sea) and Arunachal Pradesh.

So yes, the current territorial disputes in East and South-East Asia are an historical extension of ancient times. The question is whether the US is willing to expend the blood and treasure required to resist. I personally doubt it.

Abe in his speech to India's assembly last year proposed strengthening the FPDA by adding Japanese and Indian forces and so creating a "security triangle" with India, Japan and Australia at the apexes.

That idea may appeal to US client-states (Philippines, Singapore) but I doubt Australia and New Zealand are keen to get involved in a South China Sea conflagration unless they are threatened directly.

A proxy war like Vietnam would be acceptable to the great powers (if the battlefield is SEAsia, as in WW2) but Oz and Nz will be very worried about it spreading to Australasia. But if it looks like it is going that way, they will jump into bed with their anglophone cousins quickly enough.

I assume you mean a Five Power Defence Agreement? Agreed that the US now lacks the will to be a strategic anchor in South and East Asia given growing isolationism amidst growing poverty at home. The US even now supports Japan's re-arming as a counterbalance instead. However, could India add itself to the excluded countries along with the Aussies and Kiwis? Joining a FPDA would encourage a closer relationship of Pakistan and China given a shared border along the Kundjerab, Kilik, Mintaka passes and common interest in Kashmir dispute with India.
I would think a proxy-Cold War is more likely than a "hot" war in the South China Sea if the US is unwilling to step actively into the gap. The $64 question is would a largely pacifistic Japan re-position itself strategically in the South without permanently settled border agreements with Russia to the North?
I am not one of those who believes that the 21st century will be the new globalized trade utopia of the neoliberals. Most interesting in this article's context is that a defacto US third-party is willing to sacrifice interests abroad for their goals at home, rather like Russian Bolsheviks ca 1916-17. History rhymes, if not contextually identically. So yes, the more things change, the more they stay the same.